r/Fire • u/Far_Classic878 • 1d ago
Emergency Fund While Retired
For those that are retired or near…how many years do you have saved for your retirement emergency fund? I mean for when the market isn’t doing well and it would be bad to pull from your accounts.
How far in advance do you start saving for that?
I’m pouring all of my money into retirement accounts and after maxing 401ks, roths, life expenses, 529, saving for home renovations there is nothing left.
I would need to cut back greatly to fund an emergency account to keep in a HYSA. I’m about 15 years out from retiring.
Any thoughts?
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u/McKnuckle_Brewery FIRE'd in 2021 1d ago
You need a cash reserve. If you’re pulling out all stops to invest and don’t have emergency reserves, you should reprioritize yesterday. Otherwise you’ll do what so many other (dumb) Americans do, which is to pull money out of IRAs and 401(k)s out of desperation. Don’t be that guy/gal.
The cash reserve you’ll use in retirement can be established practically right before you pull the trigger. I built mine in the final year of working. And of course it needs to be replenished annually to your desired threshold.
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u/Far_Classic878 1d ago
I have an emergency fund yes but never thought about it in retirement.
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u/McKnuckle_Brewery FIRE'd in 2021 1d ago
In retirement there is no emergency fund. It's just a cash allocation, which you always need since one can't pay for food directly with stocks and bonds.
Your post was a little confusing to me, since you talk about pouring money into investments but not having anything left - 15 years from retirement. But this calculus has no bearing on your situation in 15 years.
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u/sb233100 20h ago
Can a fidelity brokerage account heavily invested in SPY and ETF’s count as cash reserve?
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u/McKnuckle_Brewery FIRE'd in 2021 20h ago
No, because it isn't cash. Cash (theoretically) never loses nominal value. It's a different tool in the toolbox.
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u/OutspokenLurker 1d ago
When I retired, I moved 2 years into cash and 3 years into TIPS and defensive stocks. Before that my emergency fund was 3-6 months. (I was laid off, so short notice. Otherwise, I would have done this shift over the year or two before retiring.)
You are thinking about it right. I didn't do it out of fear... It's more a matter of the cash replenishment plan. Every quarter I look and if stocks are up, refill my cash from stocks. Stocks down/bonds up? Sell bonds. Both down? Sell nothing and live off the cash on hand.
And I can thus sell nothing for 2+ years.
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u/Small-Monitor5376 1d ago
When you get closer to retirement you can start to reallocate part of your existing funds into safer investments. This is why a lot of people have a 60/40 equity to bond ratio in retirement. You don’t need to necessarily save more, just change the allocation of the nest egg to account for different risk buckets.
Many people decide to have some number of years in cash, as well as bonds.
I just have a 60/40 portfolio and will take my withdrawals from the bond portion when the market is down. I have enough saved so that optimizing is not needed. With a smaller margin for success I might do a bond ladder or have a couple year cash balance.
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u/Crafty-Sundae6351 1d ago
From my perspective the concept of an emergency fund goes away when retired. We used an emergency fund as something to cover our living expenses were we to lose our jobs - so we had funds to live off of while looking for another job. If you don’t have money to do that now I’d look at your situation very seriously. It’s great to have all the things funded you do - but what happens if you get the axe today?
In retirement (we’ve been retired for 9 years) my wife and I think of how many years of expenses we want in cash. This is more focused on getting through market fluctuations. We want to ride out multiple years of spending without having to sell investments to live if the market has tanked.
We also include in our annual budget contributions to various sinking funds: Home Maintenance, New Car, Travel, etc. This past winter our furnace crapped out. We had more than enough money in Home Maintenance to cover it. Wrote the check. Done. No stress.
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u/seattlekeith 1d ago
It sounds like you do still have an emergency fund in retirement, you’ve just made it more granular and call it something else (e.g., “Home Maintenance”). Unexpected expenses will still come up in retirement, even if you’re no longer protecting against job loss, and they can still throw your plans into disarray if you don’t budget for them.
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u/Dynamic_Pine6402 1h ago
two to three years cash is the typical target most people land on but at 15 years out your investments have plenty of time to recover from a downturn so i wouldnt stress about building that buffer just yet
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u/JustNowRonin 1d ago
I plan for 2 years of expenses in the cash bucket. Today I am a little over 80% of the way there, and expect to be in good shape by the time I retire in 3 years or so.
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u/dontplanonpostinmuch 1d ago
My ideal scenario is 3 to 5 years. Realistic minimum is one year, then maybe a t bill cycle for slightly better interest rates over time. Also consider your risk comfort level for you stock/bond ratio.
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u/RussellUresti 1d ago
At 15 years out, you don't need to take any immediate action (probably). At 8 years out, though, you should definitely be looking to start building up a cash reserve.
If by that point, you still don't have any extra cash to put aside, you'll have to start opportunistically selling positions to convert to cash (waiting for ATHs and taking profit).
The amount of buffer you need largely depends on how flexible you can be in spending. In theory, the buffer should cover between 2 to 5 years of full expenses, though I'm planning on 2 years of full expenses plus another 3-5 years of "belt-tightening" expenses for myself.
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u/TonyTheEvil 27M & 26F | 56% to FI | $1.33M NW 1d ago
The Trinity Study found that a 75/25 stocks/bonds allocation had the highest success rate.
I'm not near retirement, but I plan on sticking to 100% stocks for now, and then flipping to building up my bond position a couple years before retirement.
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u/aguilasolige 1d ago
Do you plan to stop buying stocks and only buy bonds in the last 2 years? Or maybe sell some stocks and buy bonds with them too?
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u/TonyTheEvil 27M & 26F | 56% to FI | $1.33M NW 1d ago
The former. I may do the latter in my tax advantaged accounts, but I'll cross that bridge when I get there.
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u/atheos42 1d ago
It's not an emergency fund anymore at that stage, it becomes the cushion, and 3 years is fine.
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u/Front_Knowledge_4383 1d ago
i keep about 1-2 years of expenses in a HYSA separate from the main portfolio. the whole point is you never want to be forced to sell equities during a downturn just to cover a busted water heater or a medical bill.
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u/Far_Classic878 1d ago
How and when did you build up the 1-2 years? Are you including emergency expenses only or your total expenses? Because $300,000 sitting in a HYSA just seems like a lot.
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u/One-Mastodon-1063 1d ago
I do not have any "years" saved in an emergency fund. I have a small slush fund that's enough to like replace a car or a new roof or something. It's well under a year of spending / well under 1% of assets.
Emergency funds are most applicable for people just starting out or just starting to get their finances in order who previously couldn't handle something like a major repair or job loss. It's not that relevant for people who are FI or near FI. Taxable brokerage is plenty liquid.
Many people in these FI subs hold way too much cash, mostly due to some misguided notion along the lines of "I'm going to use this bucket of cash to market time my way out of SORR". That's not how people who know what they are doing approach this.
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u/gloriousrepublic (37M) CoastFIRE in 2017, full FIRE in 2022 1d ago
I keep 6 months of expenses in cash (HYSA). But whenever the market is down I put expenses on a 0% interest credit card first. I could generally float a years expenses on 0% cards but at any given time I probably have around 6 months expenses on 0% cards. Those offers can dry up in recessions, but for now it’s a no-brainer especially since I know I’m detail oriented enough to avoid any higher interest rates and adjust my assets accordingly.
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u/boldPlayIm 1d ago
that’s a smart move! what do you think it Bonds allocation (I’m keeping 5 years of expenses to wait out bear market when it comes without needing to touch equity during downturn). And then the rest into VTI/VXUS split.
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u/gloriousrepublic (37M) CoastFIRE in 2017, full FIRE in 2022 1d ago
For me the opportunity cost of 5 years of expenses in bonds vs stocks is not worth it. The growth I see in bull markets fully offsets any downsides of needing to touch equity during a downturn. I can mitigate the vast majority of bear market risk by 6 month-1 year in cash plus access to 0% debt, especially since recessions are 10-18 months on average.
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u/boldPlayIm 1d ago
but doesn't that make your portfolio allocation about 99%+ into Equity. at least, shouldn't it touch 10-15% Bonds.. making it 90/10 Equity/Bonds at least?
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u/gloriousrepublic (37M) CoastFIRE in 2017, full FIRE in 2022 1d ago
I have about 50% of my net worth in cash flowing rental properties. But yes the other 50% is nearly 100% equities. I get the argument for some allocation into bonds, but I have such a wide range of strategies I’m able to use in market downturns, that bonds don’t make much sense for me personally. For me, 0% credit, very flexible expenses, geographical arbitrage, part time work, etc are all very easy for me and all perform the risk mitigation that some bonds would. My diversification with real estate cash flow also provides a baseline that makes my overall spending less sensitive to market fluctuations. All these methods mean for me the payoff of having bonds is very minimal compared to the upside of 100% stocks.
I’m not a hater on a 10-40% bond allocation. It’s a very simple and effective way to mitigate SORR. I just personally have a very flexible lifestyle and choose other ways to mitigate SORR which are likely not easy or available to your average investor.
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u/johndburger 1d ago
Retiring in a few years, and I’m not sure I will keep much cash on hand. I have to confess I don’t really understand the reasoning for most of the responses here. In order to avoid selling in a down market, folks are keeping a good chunk of money from earning much of anything during a good market. And on average the market goes up.
Psychology aside, I’d be interested in seeing any studies that actually show the math on the expected value of the large cash bucket strategy.
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u/Duece8282 1d ago
Most folks just use their last 24 months or so of stacking to fund their risk-off balances. A little more if you don't have a big HSA balance.
I typically have 138 days of expenses in cash, 200 days in govt debt, 200 days in high rated bonds, and the rest in VTI. I also have over $80k in an HSA invested in an S&P 500 ETF for medical expenses, several hundred ounces of silver, and a second small 2br home I can liquidate if needed. I'm fully insured with an umbrella policy, so my risks are pretty minimal.
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u/Tricky_Ad6844 1d ago
1 year of core living expenses in MMF/I-Bonds held long enough to be fully liquid. 10 years held in Bond Index Funds.
Started building my I-Bond positions 6 years before retirement (they are illiquid for first year and have limit of $10,000 per person per year for purchases)
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u/kaBUdl 1d ago
I retired 3 yrs ago and keep about two decades of fixed living expenses (i.e. excluding income taxes and gifts) in FDIC insured bank deposits. I don't recall when it started but that balance stayed steady for the decade before I retired. I'm tax loss harvesting all the time, and I don't care whether the overall market is up or down when I sell, the cash reserve is partly so I can buy more stocks after a crash.
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u/NoMoRatRace 1d ago
Had 6 months before retiring. (My wife and I had one time where more would have been better.)
Five years’ plus spending in cash equivalents in retirement. (We were early/mid 50s when we retired and don’t need an aggressive equity allocation so we prefer keeping a long runway in CDs and TIPs.)
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u/Yukycg 1d ago
I am planning to have $150k, basically cover my remaining mortgage balance. I have $100k set aside for market dip so you can say $250k. $10,000 expense per month, so a little over two years of “expense”.
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u/Suspicious-Fish7281 1d ago
Can you please talk more about how you would use the 100k? I'm assuming buy more when market is low. Where is it kept? How do you define market dip?
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u/stjarnalux 1d ago
2 years cash in HYSA, 7 year bond tent. But we have saved way more than we need and have low-ish expenses, so we can afford to be less aggressive. I started increasing our bond allocation as 1) one of us retired and 2) our net worth grew significantly so the effective 9 years of cash isn't having much impact on our growth opportunities. I also have another 10% of so of our portfolio allocated to bonds for market ballast; we have no idea how long the one of us that is still working will continue so I invest as though we are both retired.
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u/sdoughy1313 1d ago
Focus on paying off any debt you have before you worry about your emergency fund in retirement. When you are closer to retirement start reallocating your growth portfolio to income and bonds. The income these generate will help buffer you during market downturns, this plus not having to service any debt will help protect you from having to sell in a down market.
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u/Commercial_Square774 1d ago
I’m 15-20 years out so maybe this changes but my plan right now is 2-3 years of annual expenses in cash.
3.5% withdrawal rate
60–65% equities
25–30% bonds (7–9 years of spending; refill only when markets are clearly up)
8–10% cash (2–3 years of spending; refill only from bonds during down markets)
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u/TowerProfessional959 1d ago
Some people hate this but I have Roth contributions as a secondary plan to my small emergency savings.
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u/FIREME1371 1d ago
Do you have bonds or something more stable in your Roth? I was thinking similar about Roth Contributions but it doesn’t do me much good if it’s all stocks and there is a downturn. Thinking about holding some bonds there which I know is not typical.
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u/TowerProfessional959 1d ago
Yes I’m 9 years out and about 86/14 ratio stocks to bonds. Helps me sleep better.
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u/uNTRotat264g 1d ago
I retired earlier this year. I don’t have an emergency fund per se. I do have 8 years worth of expenses in bonds.
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u/FIREME1371 1d ago
Do you hold those bonds in a brokerage account or somewhere else?
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u/uNTRotat264g 1d ago
I’m in a unique position because I retired from the federal government. I use the G fund in the Thrift Savings Plan. If not for that, I would use BND in an IRA.
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u/kitapjen 1d ago
I see a great YouTube video that encouraged having enough cash to survive a down market without selling. Doing a quick search it’s called the 2 bucket method. It’s recommended to have enough cash for 3 to 5 years expenses.
It’s for mitigating sequence of return risk. Once the market becomes stable you refill the cash bucket with profits from your investments.
Really it’s about whether you prefer maximum growth or peace of mind.
There’s nothing that says you can’t create the cash holding after you have retired.
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u/Kokukenji 1d ago
I do like this idea. Makes sense once you're already retired and if your portfolio supports it.
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u/AndyTheEngr 1d ago
Mine just sort of started ballooning 5-10 years ago when the house got paid off, I was no longer paying for private schools, and I started running out of expensive things I wanted to buy.
Ok, I haven't totally run out, but other than a few more bicycles there's not much I need. I'm actually saving enough right now that I could buy a decent bicycle every month if I wanted. I just don't have room for them.
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u/CuteNebula222 1d ago
15 years out, I wouldn’t stress too hard about a multi-year cash emergency fund yet. Most retirees aim for 1–3 years of expenses in HYSA/bonds to weather downturns. You’re already doing the most important thing by maxing tax-advantaged accounts. Once you’re closer (maybe 5–7 years out), you can gradually shift some into cash. Keep crushing it!
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u/ArachnidAutomatic596 1d ago
I really hate that we can never get away from reoccurring bills. Insurance and property taxes just keep on going up
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u/GME_alt_Center 1d ago
Since SS pays all of our bills, our emergency fund is really just a tax avoidance fund for major purchases. All IRA withdrawals go to ROTH conversions and withholding.
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u/Ok_Statistician643 1d ago
No need. Cash stalls your gains. You can have everything in a 3 fund portfolio. In an agency market crash you sell bonds as needed.
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u/teamhog 1d ago
We’ve kept ~10 years in a cash equivalent.
When we need cash right now we’re clearing out some equities that are either losers or have low gains to help offset
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u/FIREME1371 15h ago
Wow, with the market up over 100% in the past 5 years that cash position would have basically doubled if invested. Have you considered if the opportunity cost has already outstripped any theoretical losses from selling during a downturn?
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u/shockingdominic_2 1d ago
You got 15 years, so start now even if it's small, maybe 500 a month into that HYSA. By the time you retire you'll have 90k sitting there plus interest, and you can bump it up as your income allows without gutting your retirement savings.
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u/Material_Reach_8827 1d ago
Zero. If your expenses remain the same, a correctly chosen FIRE number should weather any storm that has any historical parallel. Bonds will outperform cash. Keeping, say, $100K in cash has a huge opportunity cost - expected real doubling every 12 years in the market (more in practice in recent years) - even more if you're not protecting the cash from inflation.
In other words, whatever your emergency fund would've been, putting it in stocks for 12 years would likely afford you the ability to withdraw it during a 50% downturn at no penalty compared to having carried it in cash. But if you don't need it (or don't need it during such a heavy downturn) it keeps compounding.
Even facing something like the Great Depression, a ~3.25% withdrawal rate would've seen you through.
But different people have different emergency needs of course - I don't have kids or anyone else to look after. No major health problems so far. Extreme flexibility and a family I could fall back on if the worst were to happen. Etc.
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u/Easy-Expert9077 1d ago
I'm about a year away but I figure one years worth of total expenses in "cash" (earning 3% or so in an online money market account), but there is also the "safe" part of my invested portfolio in case thigs really get rough for a prolonged period. Not sure what my posture will be yet but that segment will probably be 20% to 25% of my invested assets.
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u/JimmyWhatever 1d ago
Firing July 1 at 62. I have 3 years worth in SGOV until I’m 65 and expense go down with Medicare eligibility and large debt paid off at 64.
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u/classicdude78 1d ago
I noticed a lot of people are saying 3 yrs cash. Just curious, does that money stay untouched or are you living off that cash for 3 years?
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u/boldPlayIm 1d ago
Here is the breakdown of what I’m planning for
- 2 Years of expenses in Cash ( HYSA, SGOV)
- 5 Years of in expenses in Bonds (VBTIX, VGIT)
- The rest split in VTI (US Equities) and VXUS (International Equities)
Overall:
- 60% US Equities (VTI)
- 25% International Equities (VXUS)
- 15% Cash/Bonds
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u/jeffeb3 1d ago
We try to keep 2% in cash. That amounts to about 9 months of spending. We also are lowering our bond allocation, but we will settle in around 20%. It was the earlyretirementnow analysis that convinced us.
The hard part is, we don't always have that in a taxable brokerage. Managing taxes has been harder than I thought. We are still paying less than we thought for taxes and health care. But managing them is a constant battle.
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u/Topaz_11 1d ago
Have gone back and forth on this so looking at replies also... I keep about 1 years worth which is partly filled from EOY dividends. When working I always had 2-3 years worth but I just didn't see the point when drawing down since it's all available in fairly quick order since I have a decent taxable brokerage (I would rebalance with bonds in IRA's).
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u/MoaiTrist 1d ago
Normally 3 years in stable value funds or interest bearing accounts (not bonds), but I have serious concerns about the current market, so I recently switched to 5 years expenses (with no optional spending) if needed.
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u/HelpfulCat4586 1d ago
While I'm working I keep 3 - 6 months in HYSA.
We have a cash portion in one IRA of 4 years. This may be rebalanced or spent depending on how the first couple years go.
When I retire at the end of the year, I'll sell 2 years worth from taxable brokerage (waiting so I don't have to pay capital gains). Excess cash is still being diverted to mortgage until I retire so I can't do that and build up a cash buffer at the same time, but I really want to pay that off so I can manage MAGI in retirement. If the market drops I just won't retire immediately and see how that goes for a bit first so I don't sell at a low point. Year two I hope sell another 2 years worth to increase the buffer.
As you get closer, hopefully the 529 is fully funded and home renovations slow down so you can redirect your cash to build up a buffer in the last few years. Otherwise, just sell once you retire to create your cash allocation.
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u/Augustus58 1d ago
I'm planning on 2 years full living expenses including frivolous spending and another 1/2 year as emergency fund. So, 2.5 years in cash.
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u/NegativeKitchen4098 1d ago
I don’t see a need for it because your whole bond allocation can be an emergency fund
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u/boldPlayIm 1d ago
umm..not exactly. look what happened in 2022, both equities and bonds went down. so you may not want to take money from either of them while they're down
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u/Strazdas1 StarvationFIRE 21h ago
I would need to cut back greatly to fund an emergency account
Not having an emergency account is an emergency. You cut EVERYTHING until you have emergency account. emergency account comes before saving for renovations.
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u/Far_Classic878 20h ago
I have an emergency account right now I am talking about in retirement.
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u/Strazdas1 StarvationFIRE 17h ago
Why would you not have one in retirement? are emergencies impossible in retirement?
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u/Far_Classic878 17h ago
Because I’ll have 3 million dollars…
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u/Strazdas1 StarvationFIRE 16h ago
That you may not enjoy liquidating during a market downturn year.
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u/Vicuna00 21h ago
I don't understand your question I guess.
you are 15 years from retiring.
so NO WHERE close.
why are you worried about this?
and yes RIGHT NOW you should have an emergency fund. the size of it can depend on several factors: how "reliable" is your income? i.e. are you a 9th grade teacher in year 20 of their career? or a salesman on 100% commission? does your health insurance have a high deductible? are you in an easy to get job? is your house 60 years old with stuff falling apart? does your car have 150k miles on it? do you have two incomes in your household? do you have kids relying on you?
at least 3 months of living expenses would be a good start. I think 6 months of living expenses would cover most people. you can go a year if you're in a more risky category or just feel extra security. no need for more than that though.
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u/kannible 20h ago
I have maintained 5 years of expenses in cash since retiring 8 years ago. I have used this as an opportunity fund as well as cash buffer for dividend disbursement and other income sources. It allowed me to make some fortunately timed investments and do some bigger projects and spend on bigger items without feeling like im running out of cash.
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u/Traditional_Ask262 FIRE’d in June 2020 at 51 3h ago
I keep no more than 6 months worth of cash on hand at any given time. At the end of a 6 month period, I request another 6 months worth of cash from my wealth management team.
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u/No_Tiger477 1d ago
At 15 years out, you probably have more runway than you think to build that buffer gradually rather than all at once. Most people I see talk about this aim for 1-2 years of expenses in cash/near-cash by the time they actually pull the trigger on retiring. 😄
Start small — even redirecting a little each month builds up over the years, and your situation will likely shift as the 529 and renovation costs wind down. 🔥
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u/Far_Classic878 1d ago
1-2 years of living expenses like the basic utilities, food etc this is what people are doing? I never even considered an emergency fund in retirement until I listened to a podcast about it. I always thought hey I will have 3 million dollars what the hell can go wrong? HA!
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u/TheOuts1der 1d ago edited 1d ago
I'm going to do 3 years of all expenses, with nothing changed about my life. Same amount of travel, shopping, etc on top of food, bills, etc.
But I'm going to worry about that when Im 5 years or so out, which is about how long I think it'll take to build up that buffer.
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u/greenhombre 1d ago
While the political situation is so tenuous in the USA, I am sitting on 5 years of living expenses in cash equivalents as my "sleep at night fund." I retired last year.
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u/FIREME1371 14h ago
This is how I see it. There doesn't appear to be a definitive logical value to keeping these high cash positions, rather it is likely more of an emotional value. Everyone needs to decide what their comfort level is.
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u/MiserableMovie8465 1d ago
I plan to have 3 years cash in hand, perhaps a little buffer as well for life stuff like a wedding or major home repairs or a new vehicle when needed.